Banks and customers are most likely to be reluctant to use the full lending capacity made available by the Federal Reserve when the economy experiences
A)Growth and low interest rates.
B)Growth and inflation rates higher than the interest rate.
C)High inflation rates.
D)A deep recession.

Question

Quizplus · Accepted Answer

During a deep recession, banks and customers are likely to be cautious and hesitant to take on additional debt, even if the Federal Reserve has made more lending capacity available. This is because there is a higher risk of default and the economic outlook is uncertain. In contrast, during times of growth and low interest rates, banks and customers may be more willing to take on debt because it is easier to make payments and there is less risk of default. Similarly, during periods of high inflation rates, lenders may be more cautious about lending because of the risk of inflation eroding the value of the loan over time.

Banks and Customers Are Most Likely to Be Reluctant to Use